Economic woes see second-highest debtor finance surge on record

by Adam Smith06 Jun 2012

Economic uncertainty has led to the second-highest yearly increase in debtor finance ever recorded.

Statistics from the Institute for Factors and Discounters show $1.26bn of turnover for the debtor finance sector in the March quarter. The result is a 31.4% increase on the March 2011 quarter, driven by a 99% surge in NSW and the ACT.

Bibby Financial Services national sales director Gary Green said economic uncertainty has seen more SMEs make use of debtor finance.

"The fluctuating Australian dollar, the knock-on effect of the Eurozone’s economic woes, weakening consumer appetites within the retail market as well as a continuation of the ATO’s focus on arrears, are all factors contributing to a sentiment of uncertainty within the SME sector. The manufacturing sector has been especially constrained by weak domestic demand and flat commercial and residential construction,” Green said.

“Due to this uncertainty, we are seeing many clients who do not wish to risk their personal property but need an increase in their lending facilities. Softening property values combined with stringent bank lending conditions might also be factors, as we are seeing many businesses that have had increases to their funding facilities refused by traditional lenders,” he added.

But weak demand and difficult business conditions were not behind the increase in every state. Western Australia saw a 25.6% increase in turnover for the quarter, and Green said increased business opportunities in the state had actually led the growth in debtor finance.

“In Western Australia the drivers for debtor finance growth are quite different. The flow-on effects from the mining boom mean that businesses are struggling to deal with cash pressures to fund the many new business opportunities,” he said.

Green said brokers were also beginning to identify opportunities for debtor finance within their client base, with referrals up 23% this year.

“We are starting to see debtor finance recover and continue to perform very strongly against other types of business lending. In this environment, SMEs need flexible funding solutions and strong cash flows to address the increased uncertainty, and we would urge SME owners and managers to review their funding arrangements at this time,” Green said.

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